Restaurant Chains Took Loans Meant for Small Businesses. Will Radio Conglomerates Do the Same?

Watchdog groups fear that language in a new stimulus bill could allow individual stations owned by large companies to “masquerade” as small businesses — and take all the money

Elias Leight

May 14, 2020 3:39PM EDT

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At the end of April, more than 120 members of the House of Representatives issued a plea to Speaker of the House Nancy Pelosi and House Minority Leader Kevin McCarthy. “Reliable local information and reporting in our communities is… more important than ever as our country responds to and recovers from the COVID-19 crisis,” they wrote. “Congress must do everything possible to protect local news sources during this crisis to safeguard our democracy and keep our communities informed.”

An early version of what’s being called the Heroes Act, a $3 trillion package, attempts to answer this call. The bill provides an additional $10 billion for the Payroll Protection Program — which offers forgivable loans to small businesses on the condition that they spend 75% of the money on payroll — and loosens eligibility requirements to help newspapers, radio stations, and TV networks apply.

But as the bill is currently written, small business owners fear that radio stations under the control of large conglomerates will be eligible for money along with hard-hit local newspapers. Treating major conglomerates — which own hundreds of stations and employ thousands of workers — like a small business is roughly akin to treating an aircraft carrier like a rowboat.

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The National Association of Broadcasters, a lobbying group that represents modest radio groups as well as the massive chains — including iHeartMedia (around 850 stations), Townsquare Media (around 320 stations), and Entercom (more than 235 stations) — cheered the Heroes Act. “Hometown broadcasters and community newspapers are providing vital news and information during these unprecedented times to keep families and communities safe, while struggling with record advertising revenue losses,” the NAB wrote in a statement on Tuesday. “Broadcasters look forward to working with all Members of Congress to ensure that such legislative language is swiftly enacted.”

But other organizations said the bill’s language undercuts its original intent: to help small businesses. On Tuesday, Craig Aaron, Co-CEO of the media advocacy group Free Press Action, expressed fear that, “as written, this legislation would benefit the biggest chains at the expense of their smaller competitors and other struggling businesses.”

“TV and radio stations and publicly traded media companies will be competing for loans directly with their locally owned competitors and every other small business, when many of these large companies should have access to other funds,” he added.

The American Association of Independent Music, which counts more than 700 independent labels as members, also came out against the bill’s current language on Thursday. “It would be a travesty if these large radio conglomerates were able to get money out of the next tranche of PPP forgivable loans,” says Richard James Burgess, the head of A2IM. The big radio companies “are masquerading as small businesses, but they’re gigantic conglomerates.”

While the bill still remains in the House, watchdog groups are concerned. That’s because last month, lobbying organizations for restaurant chains managed to insert language into the CARES Act (a predecessor to the Heroes Act) allowing “business concerns with more than one physical location” to get loans for individual outlets as long as each outlet had less than 500 employees, according to The New York Times.

Large restaurant chains quickly took advantage of this loophole, siphoning off money from a pool created for small businesses. Shake Shack, which has almost 200 restaurants around the country and almost 8,000 employees, received $10 million. Potbelly, with 400 outlets, raked in $10 million. The parent company of Ruth’s Chris Steak House took $20 million.

In contrast, many restaurants that actually meet the definition of a small business — employing less than 500 people in total — were unable to obtain any sort of loan before the first $349 billion set aside for the PPP disappeared. The uproar around this disparity led Shake Shack to return its loan on April 19th. Potbelly, Ruth’s Chris, Sweet Green, and other companies followed suit.

The large radio companies represented by the NAB rival these national restaurant chains in size — iHeart, for example, employed more than 12,000 people before a wave of January layoffs. But the Heroes Act pretends otherwise. On page 823, the bill currently notes that an “individual physical location” of a conglomerate will now “be treated as an independent, affiliated entity.” That makes it newly eligible for a loan “to support the continued provision of local news, information, content, or emergency information.”

Individual outlets would not be allowed to distribute the funds to their parent organization. But large radio companies could still use this as a way to alleviate their financial strain on a station-by-station basis, effectively pretending that they are a collective of small businesses rather than a centrally operated conglomerate. While stations only qualify if their revenue falls below a certain threshold, that threshold is high enough that it would only exclude five stations, according to Aaron.

Radio conglomerates claim they need these loans to maintain a local presence. But others argue that these conglomerates have never been less interested in being local than they are now. “These are companies that have gone and gutted their payrolls, dumped local talent, and replaced them with robot DJs,” Aaron says. “We’ve gotten so far from local owners that radio is almost unrecognizable now,” Karen Slade, vice president and general manager of the independently owned KJLH in Los Angeles, told Rolling Stonelast year.

The enfeebled local radio structure was further hamstrung in January when iHeart, the biggest of the conglomerates, laid off a large number of employees, mostly in small and mid-sized markets. One broadcaster who lost his job told Rolling Stone he thought the company “is very much convinced that the local aspect of radio is no longer important.” “With iHeart’s new direction, they’re having more people do less local content,” another victim of the layoffs said. “At least for Top 40 [radio], there’s no way to give a local artist publicity.”

Larry Miller, Director of the Music Business Program at NYU Steinhardt, watched those layoffs with despair. “It’s the end of local radio as we know it,” he says. “The notion that a consolidator of broadcast radio stations would provide greater variety and greater access to Americans — we now know for sure that that was utter horseshit.”

Even as the NAB is pushing for its major conglomerate members to get loans that should be reserved for small businesses while touting local credentials that many doubt exist, the lobbying group is also pressing the Federal Communications Commission to loosen the caps on local ownership limits (again). This would allow conglomerates with cash to increase their presence in medium-sized markets and smaller markets, owning as many as eight stations in one area and effectively establishing monopolies.

In response, two advocacy organizations, the Future of Music Coalition and the MusicFirst Coalition,filed comments last month urging the FCC to keep local ownership rules intact, precisely because of all the evidence that increased consolidation over the last two decades has actually hurt radio’s ability to serve local communities.

The coalitions warn that “if the Commission were to further loosen the Local Radio Station Ownership Caps, what little actual localism is left at independent and locally-programmed regional AM/FM radio stations would be further jeopardized as syndicated programming and voice-tracking takes the place of long-standing local talent and genuine commitment to local concerns.”

To recap: The NAB is asking Congress to give radio conglomerates money, supposedly to support their local programming. At the same time, it’s pushing the FCC to jettison ownership rules, which, many worry, will cement radio’s decades-long turn away from local programming.

All this is not to say that radio conglomerates aren’t hurting — just like the restaurant chains and more than 30 million Americans who are now unemployed. The radio business is driven by advertising, and a pandemic has mostly wiped out restaurants and concerts and sent the economy into recession. “The crisis at radio stations is real,” Aaron says. “Their numbers are down significantly right now.”

That’s why small radio chains should absolutely benefit from the latest edition of the PPP. But they — and other mom-and-pop businesses — may be unable to benefit at all if conglomerates end up with all the money.